Today's e-Commerce market is oversaturated and many players are losing steam and losing money. Yet Chinese e-Commerce giant Alibaba recorded a whopping $38.4 billion in GMV this year, a 26% jump from last year's Singles Day.
While growth is slowing, it remains strong and impressive for a company as large as Alibaba. In this brief wrap-up we dive deeper into how cross-border e-Commerce performed this year.
Alibaba Growth Powered By Lower-Tier Cities, Livestreaming And New Brands
Alibaba’s strengths include incredible foresight and long-term vision. Early on, management knew the market would get more competitive, so they laid the groundwork for new strategies long before they were needed.
Their plan included focusing on lower-tier cities, integrating online-offline retail and building an ecosystem of livestreaming influencers on Taobao.
Lower-tier cities: 102 million new users participated in Singles Day this year, mostly from lower-tier cities. Alibaba claims more than 70% of new users in fiscal 2019 came from lower-tier cities.
New product launches: Over 1 million new products launched for Singles Day. Launching limited-edition products like MAC lipstick help Alibaba to stand out from competitors with exclusive products.
Livestreaming: Chinese e-Commerce web site Taobao raked in $1.4 billion worth of sales within the first eight hours and 55 minutes of Singles Day. Over 100,000 brands used livestreaming to promote their products during the day, including U.S. and foreign brands MAC, Levi's, Ralph Lauren, Sisley and Burberry.
While Taobao’s livestreaming feature has been around for years, in 2019 it became a major focus due to intense competition as brands seek to capture customers' attention.
Livestreaming effectively activates potential customers who have browsed your products for a long time without making a purchase. It is most useful for marketing visual products like apparel and cosmetics.
Who Were The Top Sellers?
This year, 299 brands each brought in more than $15 million in revenues on Singles Day, up from 237 in 2018.
Top brands included Estée Lauder, Apple, Li Ning (sportswear), Bosideng (apparel), Perfect Diary (cosmetics) and HomeFacialPro (skincare).
Brands earning over $15.1 billion in GMV across multiple platforms (not just Tmall) include: Uniqlo, Semir (apparel), Gree (air conditioners), Anta (sportswear), Linshimuye (furniture), Estee Lauder, Xiaomi (smartphones), Haier (white goods appliances) and Midea (white goods appliances).
These results mean:
1. More sales are concentrated among a few big brands. The amount of capital required to compete effectively during such holidays has increased.
2. Chinese brands are becoming more popular, as foreign brands previously dominated this list.
How Cross-Border E-Commerce Fared On Singles Day 2019
In total, 22,000 cross-border e-Commerce brands from 78 countries participated in Tmall Global's Singles Day promotions, selling more than 620,000 imported products, most of which are unavailable in China for various reasons.
Over 120,000 new products were launched just for Singles Day, indicating the retail extravaganza effectively builds brand awareness.
To further entice customers, 2,500 of these brands covered the costs of import duties and shipping; Alibaba also provided interest-free installment loans for 24 months.
The hottest categories according to Tmall were beauty tech gadgets, imported cultural products, sleeping pills/aids, pet food, products for the elderly and male skincare products.
Japanese beauty tech brand Ya-Man sold 6,000 products within just 30 seconds. Notably, each of these products costs more than $1,500.
Which trends did Azoya see this year? Top trending categories included beauty, skincare and health products.
Specifically, we saw increased demand for facial masks, tooth whitening products, perfume, eye shadow, skin moisturizer, anti-wrinkle cream, laxatives and ginkgo leaf extract. Many of these products include ingredients that cannot be found or manufactured in China, or cannot be imported due to animal testing laws cosmetics brands have to abide by.
Key Takeaways
1. Despite its size, Alibaba maintained strong growth this year by focusing on lower-tier cities, helping brands launch new products and using livestreaming influencers to activate sales.
2. More brands surpassed the $15 billion GMV mark, indicating more sales are concentrated within the larger brands; however Chinese brands are gaining in popularity.
3. Cross-border e-Commerce continued to perform well. Popular subcategories included beauty tech gadgets, pet food, sleeping aids, tooth whitening products and other products with ingredients that are difficult to find in China.
Franklin Chu is Managing Director U.S. for Azoya USA, a provider of turnkey cross-border e-Commerce solutions to assist retailers looking to expand into China through a cost-effective and lower risk method. To date, more than 35 retailers in 11 countries are partnering with Azoya to expand into China with ease, including French fashion retailer, La Redoute, Australia’s largest pharmacy group, Sigma, Europe’s largest online beauty retailer, Feelunique, and United States premier retailer of juvenile products, Babyhaven.
Why Global Retailers Are Leaving Tmall And What This Means For Your Business
By Franklin Chu, Azoya USA
International retailers have been quick to flock to large e-Commerce platforms in China, enticed by impressive consumer traffic in the world’s biggest retail market.
Yet a growing number of them – including Macy's, Watsons and New Look – have recently decided to shutter their Tmall Global stores despite growing demand among Chinese consumers for foreign goods.
Here's what's going on, as well as some alternative paths for U.S. and foreign retail companies to succeed in China.
Cross-Border Retailers Increasingly Compete With Tmall's Direct Retailing Business
Retailers on marketplaces such as Tmall Global face an increasingly precarious situation. While Tmall Global is an online marketplace for third-party global sellers, it also runs its own direct retailing business, Tmall Direct Import. This store procures inventory in bulk from leading global brands and sells directly to consumers.
This business model puts it in direct competition with multi-brand retailers such as Macy's and Watsons. Tmall Direct Import items are almost always displayed in top-ranking search results and sell for competitive prices, making it difficult for third-party retailers to compete.
Below, a snapshot shows search results of The Ordinary skincare products on Tmall, with Tmall Direct Import conspicuously highlighted in bright purple.
Tmall Direct Import ranks at the top of the search results for The Ordinary’s nicotinamide products.
Source: Tmall Global Official Web Site
Tmall Direct Import has an economies of scale advantage — it can buy a larger selection of products at lower bulk prices, and pass those savings on to the consumer. Tmall also can stock top-selling items in bonded warehouses for faster shipping. A newcomer to the market cannot do this without incurring large inventory risk.
On top of all this, there isn’t much room on a large marketplace’s web site to differentiate oneself with banners and brand logos. To compete, retailers such as Macy’s and Watsons have to decide whether or not they want to invest in a stronger customer experience or pull out of the market altogether.
Retailers Fail To Provide A Unique Proposition For Chinese Consumers
Multi-brand retailers like Macy’s are often selling the same brands that other retailers sell, prompting consumers to pick the retailer with the lowest prices and fastest delivery.
The snapshot below shows a number of different retailers all selling the same Swisse products. In this type of situation, it’s very easy for the customer to compare prices.
Source: Tmall Global Web Site
It’s hard for new market entrants to compete on pricing and logistics, so U.S. and foreign retailers should curate products that better reflect Chinese tastes. This requires procuring new inventory from sources that may not be part of the original inventory in the home market.
But it’s hard for apparel retailers like Macy’s or New Look because there are so many different colors and sizes for each product. Retailers do have to provide a wide selection to drive traffic, but localizing that selection for a market as large and diverse as China can be a nightmare.
Retailers Aren’t Making Much Money On Marketplaces
On marketplace platforms, retailers have to spend money on platform ads to drive traffic and clicks. In 2017, the average customer acquisition cost on Tmall grew to over 310 RMB ($46), outstripping the average revenue per user at 225 RMB ($34), according to market intelligence firm Analysys International.
They are also pressured to discount their goods for large platform-wide sales holidays such as Tmall’s Singles Day and JD.com’s 618 Festival in June. Discounting eats heavily into one’s margins, as these holidays often drive a large percentage of sales in a given year.
Lastly, for large e-Commerce platforms, upfront setup fees and deposits can cost tens of thousands of dollars, not to mention commissions that can erode profits.
To give an example, Tmall charges an annual fee of $5,000-10,000 USD, a deposit of $25,000 USD and commissions that range from 0.5% to 5% for the most popular categories. There also is a 1% payments processing fee charged by Alipay
For many, the costs are prohibitively high and the ROI can be much lower than in developed markets.
What Should Retailers Do?
The environment for global retail has been difficult in recent years. Many retailers are just trying to stay afloat in their home markets, and lack the resources to invest in a stronger customer experience in China.
But the competition in China has intensified in recent years, and it’s not possible for a U.S. or foreign retailer to rely solely on their brand name to drive sales anymore.
Multi-brand retailers have to figure out how to differentiate themselves, and it often comes down to product selection, price or shipping.
Proven Tips:
1. Set up a multi-channel China strategy to reduce the risks associated with relying on a single platform. Setting up an official China e-Commerce web site and a store on WeChat, China’s most influential social media platform, can differentiate you from competitor retailers selling the same brands, and enable you to build up your own loyal customer base.
2. Procure and sell a compelling mix of top-selling and emerging brands at competitive prices.
3. Enhance the user experience to win over customers. This includes moving inventory to Hong Kong or Chinese-bonded warehouses as soon as possible to speed up shipping times, and establishing your own Chinese customer service system.
4. Try to differentiate yourself through branding events. UK beauty retailer Feelunique invited Chinese influencers to tour their facilities in London, recording the event on social media and driving a strong uptick in sales.
Franklin Chu is Managing Director for Azoya USA, a provider of turnkey cross-border e-Commerce solutions to assist retailers looking to expand into China through a cost-effective and lower risk method. To date more than 35 retailers in 11 countries have partnered with Azoya to expand into China with ease, including French fashion retailer La Redoute, Sigma, Australia’s largest pharmacy group, Feelunique, Europe’s largest online beauty retailer, and Babyhaven, the U.S.’s premier retailer of juvenile products.
For a preview of where retail is headed, retail companies in the U.S. and other Western countries can look to China’s booming market.
Pervasive social media platform WeChat has attracted an astounding 1 billion daily active users. The platform signifies seamless, unified and convenient omnichannel retail service. That’s because it integrates product search, influencers, social commerce and mobile pay, plus WeChat is growing its e-Commerce ambitions with the booming Mini Program.
Learn how WeChat represents the future of retail — and how foreign retailers and brands can win by using it.
On June 29, after just three years of operations, upstart e-Commerce platform Pinduoduo submitted an SEC filing to go public on the NASDAQ stock exchange. A relative newcomer to the Chinese e-Commerce industry, Pinduoduo now boasts nearly 300 million registered users and generated more than US$30 billion in GMV in 2017. Its meteoric rise has stunned industry insiders and forced traditional players such as Alibaba and JD.com to reexamine their own business models.
Core to Pinduoduo’s success is its social commerce approach and its leverage of WeChat’s mini-program function, which Internet giant Tencent rolled out at the beginning of last year.
What Is Social Commerce?
Social commerce is an evolved form of e-Commerce, in which platforms rely on current users to “activate” potential users by sharing promotions and items with them, essentially decentralizing the user acquisition process. Users are incentivized by steep group-buying discounts and game-like campaigns that make sharing fun and interactive. In the U.S., brands may give discounts to customers who share via email, Facebook or Instagram, but the single-function nature of Facebook News Feed, Facebook Messenger, and Instagram makes the process less interactive, so social-based commerce still hasn’t taken off in the U.S. like it has in China.
A prime facilitator of social commerce in China is WeChat, specifically its WeChat mini-program function. Approximately 65% of Pinduoduo’s transactions are completed through its WeChat mini-program, which enables users to share products and make purchases without having to switch to another app. Mini-program pages are limited to a size of 1mb each and integrate with WeChat Pay so users can carry out transactions quickly. Users in smaller cities tend to use cheaper phones, so mini-programs are better suited for this user base.
For example, on Pinduoduo, a merchant may offer two prices for, say, a rice cooker. It could be priced at 300 RMB ($45 USD) for individual customers, or at 200 RMB ($30 USD) for customers that pull in another user to make a purchase, also for 200 RMB ($30 USD). This promotion can be shared on WeChat with another friend or family member, thus reaching a potential customer who didn’t intend to purchase a rice cooker in the first place. This strategy has proven to be especially effective in smaller Tier 3 and 4 Chinese cities, where users are more price-sensitive and make less frequent purchases.
Social Commerce Resolves Pain Points For Merchants In A Saturated Market
Social commerce has provided a solution to bottlenecks that have arisen from slowing e-Commerce growth in China. With traditional e-Commerce, users generally log on to a platform with an existing intent to purchase a certain product or brand. The search function plays the core role in connecting users with products, and merchants pay to access user traffic through ads or discount promotions. However, as more and more brands sell products through marketplace platforms, the market becomes increasingly saturated and traffic becomes more expensive to access as brands bid up advertising costs.
Social commerce provides a remedy to this problem by opening up a new, decentralized avenue in which customers can discover products through trusted friends and family. Since China e-Commerce is rife with cases of fraudulent and shoddy goods, many consumers have grown to suspect the authenticity of online products. Customers are much more likely to purchase goods recommended by family and friends, and WeChat is instrumental in facilitating the sharing process. 50% of Chinese customers are willing to purchase products recommended by friends and family, according to a report on cross-border e-Commerce by Frost & Sullivan and Azoya Consulting.
In addition, international brands and retailers also can set up their own WeChat mini-programs and create unique campaigns and promotions with which they can build customer loyalty. This may finally even the playing field between brands and marketplace platforms, which raise the bar higher and higher for brands who want to list their products on them.
Why U.S. Retailers Should Care
Pinduoduo is a prime example of how social commerce, facilitated by WeChat mini-programs, is revolutionizing the traditional e-Commerce industry by changing the way brands and consumers interact with each other. Going forward, e-Commerce will become more interactive and an ever-present aspect of Chinese social media. As U.S. retailers continue to struggle in the face of falling foot traffic and increased online competition from the likes of Amazon, they need to devise new ways of connecting with their end customers. Infusing a social element into one's e-Commerce strategy could be just what they need to revitalize their online business, and the way Pinduoduo has been able to do this in the China market provides a useful example of how retailers can do this.
Franklin Chu is Managing Director U.S. for Azoya USA, a provider of turnkey cross-border e-Commerce solutions to assist retailers looking to expand into China through a cost-effective and lower risk method. To date, more than 35 retailers in 11 countries are partnering with Azoya to expand into China with ease, including French fashion retailer, La Redoute, Australia’s largest pharmacy group, Sigma, Europe’s largest online beauty retailer, Feelunique, and United States premier retailer of juvenile products, Babyhaven.
